Oracle Wins in TikTok Takeover Race, Though Technical Questions Remain

With the White House’s September 15th (or 20th) deadline looming, it looks as though TikTok will remain in operation in the US, with a consortium bid, lead by enterprise software giant Oracle, named on Sunday as the preferred partner by TikTok’s parent company ByteDance.

As reported by The Wall Street Journal:

“Oracle [has] won the bidding for the US operations of the video-sharing app TikTok, a person familiar with the matter said. […] Oracle is set to be announced as TikTok’s “trusted tech partner” in the U.S., and the deal is likely not to be structured as an outright sale, the person said.”

Microsoft officially confirmed that it was out of the running for TikTok earlier in the day, with short statement posted on the Microsoft blog.

ByteDance let us know today they would not be selling TikTok’s US operations to Microsoft. We are confident our proposal would have been good for TikTok’s users, while protecting national security interests.”

Microsoft noted that it was focused on improving the platform’s security measures, addressing user privacy concerns, and combating disinformation:

“We look forward to seeing how the service evolves in these important areas.”

The statement seemed pointed towards key issues that maybe Microsoft doesn’t believe the Oracle-lead bid will be as well-suited to address. But ByteDance chose not to go with the Microsoft plan – which sets up a very interesting scenario for the future of the fast-growing video app.

Of specific interest is how TikTok will now work under its new ownership, once all the details are established – because also on Sunday, a report in the South China Morning Post explained that due to the Chinese Government’s new regulations restricting the sale of technological advancements to foreign companies, TikTok’s algorithms will not be included in the deal.

As per SCMP:

“[ByteDance] will not hand out source code to any US buyer, but the technology team of TikTok in the US can develop a new algorithm,” according to a source. The source, who did not want to be identified, said ByteDance had notified US authorities and potential bidders of the decision.”

If this is correct, then it seems that Oracle and its consortium partners will essentially be paying for the TikTok brand name, and access to its 100 million+ monthly active users in the US. 

What the impact of not including TikTok’s algorithms would be is difficult to say – some have suggested that TikTok, without its powerful machine learning system, will “wither and die“, while others expect that building a similar system, on top of its current base, won’t be so complex.

But it doesn’t seem like the ideal starting point for a non-social media company to be wading into – Oracle has no experience in managing social platforms, while its investment firm partners in its TikTok bid will be focused on revenue, and you would expect, will be keen to monetize the platform as much and as fast as possible in order to maximize their return.

And while it may seem like it can’t be that complex to formulate an algorithm based on the current TikTok base, there’s a lot that’s gone into the app’s success. TikTok’s rapid growth was built on the back of ByteDance’s years of experience in creating other social networks in China, including the Chinese-only version of TikTok, called ‘Douyin’, which was a huge success before they even considered launching TikTok in the US.

Indeed, Douyin was launched in 2016, two full years before ByteDance purchased and re-branded as TikTok in western markets in August 2018. In those two years, ByteDance had been able to establish key learnings on what works, what resonates, and formulate its algorithms based on millions of people already engaging within the app.

That gave TikTok a massive jump start – so while the system may appear fairly basic, and it may seem like another company will be able to work out a recommendation algorithm that’s close enough to be viable, a lot more work has gone into developing TikTok’s systems than many expect.

But of course, Oracle and Co. know this, this is not new information. Yet, they’re still willing to go ahead. There must be some level of confidence that they’ll come out on top here, that they can progress, in limited partnership with ByteDance, and build a successful platform.

Will that happen? I wouldn’t bet on it.

That’s not to say TikTok is doomed, it could be fine, it could work out okay. But various examples suggest that this will not be smooth sailing, and while TikTok still continues to grow and become a bigger platform, it’s not too big to fail. Definitely not.

Vine, which was essentially the precursor to TikTok had more than 200 million active users at peak, but it failed because parent company Twitter couldn’t work out an equitable monetization process in order to keep its top creators from migrating to YouTube and Instagram instead. Twitter’s management is obviously very experienced in social media and maximizing engagement, it had a huge knowledge base of people who knew the field inside and out. Yet that wasn’t enough to keep Vine running – and worth noting, Vine founder Dom Hoffman has made paying creators a top priority with his new app Byte, which he launched earlier this year.    

Snapchat is another platform that almost lost out by ignoring creators for years, before eventually coming around and refocusing its efforts on establishing a more equitable partnership-type system, which now ensures that top users are compensated and motivated to maintain engagement, helping to maximize usage. 

TikTok has also acknowledged the importance of such with its Creator Fund program, through which it plans to pay out a billion dollars in the next three years to its top creators.

TikTok Creator Fund

But that program is already facing problems, with the first round of participants citing poor payout amounts and impacts on their reach, which some have speculated is due to TikTok limiting their viewership in order to reduce payout amounts.

This is a complex area, that will take experience and expertise to manage. And while TikTok definitely has the experience in ex-YouTube exec Vanessa Pappas, I can’t help but think that Oracle is not the best fit for the company in this respect.

Microsoft might not be either, but LinkedIn has continued to grow under its ownership. At least it has some base of knowledge in this area to tap into.

If the new TikTok team can’t work out the key algorithm details, can’t evolve its monetization programs, and can’t, essentially, learn from the mistakes that other platforms have made in the past, it will fall flat. That might be difficult to envision now – especially with TikTok once again leading the app download charts in August. But it can, absolutely fail. And even with those great download stats, in 2020, who knows what they truly represent?

Social media usage is way up on normal amounts as people look for distractions during the various lockdowns and in replacement of their normal social gatherings and entertainment events. TikTok’s numbers are clearly being inflated beyond what’s normal because of this – so in normal times, how many people will be using TikTok as much? 

And with new ownership that’s less familiar with dealing with the ebbs and flows of social platform engagement, can it overcome these key challenges and still establish itself as a key player in social media space?

As noted, there are still many technical details to be clarified yet, so no one knows for sure how it will all play out. But there are many moving parts, and various potential pitfalls that could end up derailing the app. 

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